dizzy. >> welcome to our program. tonight, we begin a two party series, a conversation wit lawrence summers, former president of rvar d white house advisor. tonight we focus on the debt elimination talks taking place in washington. >> lay out for us as you see it the consequences of a default. >> lehman brothers post event on steroids. >> meaning what? >> meaning what the buck will be broken in money market funds. americans will rush to get cash and put it under their mattresses. major corporations will be unable to borrow. the stock market will crash. and quite likely, the basic

mechanis of payments that keep the economy going will break down. >> rose: we conclude with george stephanopolous of good morning erica on the political implications of the debt limitation talks. >> in the end, i think, even if the public, if we go in default, even if the pubc blames repuicans more the president bears more responsibility and has to deal with the consequences. >> rose: the economic consequences of the debt limit talks with george stephanopolous when we continue. funding is provided by the following: we can all root for. who beats the odds and comes out on top.

but this isn't just a hollywood storyline. it's happening every day, all across america. every time a storefront opens. or the midnight oil is burned. or when someone chases a dream, not just a dollar. they are small business owners. so if you wanna root for a real hero, support small business. shop small. caioning sponsored by rose communications from our studios in new york city, this is charlie rose. rose: lawrence summers is here. he is a charles elliot

university professor at harvard where he was president of the university from 2001 to 2006. he has had a distinguished career in plic service at the highest levels of government. he was treasure secretary under president clinton. in 2009 he returned to the white house as dector of the economic council and in that role he was pivotal in providing president obama's response to the financial crises. i am pleased to have him back at this table. welcome. >> glad to see you charlie. >> first time since you left government which has been how long now? >> about six months. looking at the negotiations in washington today based on everything that you saw when you were there, based 0en a brilient career as an economist and based on having time to think about all of these things -- >> it's not inspiring. it's not inspiring texture at a couple of levels. the idea tt anybody would take the creditworthiness of the united states as a hostage to serve any objective really is

wrong. you know, the way i say it is, my children and i can argue about how mu they should spend in college, whether they should pay or i should pay. but as a family, we don't really get to say you will get stiffed because we're having a fight. and that's what his debt limit is about. >> so the first thick to say is that taking the creditworthiness of the united states as a hostage is badly wrong and that is in essence what the house majority is saying. secretary thing that i think is discouraging is that all of the energy is on the projected deficit over the next 10 years,

when the reality is that any deal that is struck nows going to get changed several times, when the reality that there are certain number measures that reflect low hanging fruit that will happen at some point, any which way, and when the problem right now is that the ecomy is in dange of stagnating from lackf dand so would lik to see the jobs deficit be as much of a focus in this conversation as the budget deficit. that's the second thing. and the third thing that i find discouraging is that taking the long run problem, which is a serious one, the president has been prepared to discuss all of the possible solutions. he has raised ideas that are

unthinkable to many in his political party like the idea of changing the medicare age and pushing it up to 67. and the other side has rejected tax reform, even when the tax reform in question is a few billion dlars special generous breaks for corporate jets and a few billion dollars in special breaks for private equity. those are small items and those items are not the difference between solving the budget and not solving the bget. but if the congressional side is unwilling even to contemplate thosmost minimal and legitimate of revenue measures, then you really are in a situation where it's very

difficult toave compromise. >> let me talk about several things here. number one, first, lay out for us as you see it the consequences of a default. >> lehman brothers, the post lehman event on steroids. >> meaning what will happen? >> meaning that the buck will be broken in money market funds, american less rush to get cash and put it under their mattresses. major corporations will be unable to borrow. the stock market will crash an quite likel the basic mechanisms the payments that keep the economy going will break down. >> irreparable. >> i think we will not forget the immediate aftermath and we will live with a long tail that will make us poorer and less

proud as a country and paying much more to borrow fo a very long time to come. >> so what do you think happened to our politics? >> charlie, i think in the end, churchill's doctrine that the unitedtates does the right thing after exhausting all of e alternatives will probably play out here too. >> rose: but the grand design is off the table, it looks like. there's no longer goi to be a $4.5 trillion deduction over 10 years. >> it certainly looks unhikely. and that's too bad. but let's distinguish degrees of bad. i still am confident, as the president has said, as senator mcconnell has said, that a default will be avoided. what the deal will be that will

avoid a default is in some sense not the most important question relative to making absolutely certain that we avoid a default. that has to be the first priority. for me. second priority is making sure the economy grows. third priority is, which we need to address now and we're going to need to keep addressing over the next few years, is, bringing the level of spending in ou country d the vel of revenues in our country back into balance. >> ok. fair enough. what does larry summers think is the red line in which this administration, because it has made compromis it did not expect to make on the revenue side, has it not? >> three bottom lines. one, default must be avoided. and default must be pushed out of reach as a possibility until after the election. second, demand has to be supported through continuation of the payroll tax cuts and

other measures. >> rose: that's immediate. >> that's the immediate stimulus to demand. and third, there has to be a balance between core interests of the two parties. if the core ierests the democrats have in protecting medicare are to be sacrificed in the me of deficit reduction, there has to be a willingness on the republican side to look to revenues. >> rose: if they're not prepared to look at revenues, then what then? >> then medicare has to be protected. the debt limit has to be extended. the economy has to be suorted. and we need to have an election campaign that debates the merits of these two philosophical things. >> rose: can the country wait for that? can the economy wait?

>> the economy can wait for that. the priority for thenext 18 months is ming sure ts economy grows. the onomy can wai f that. it would be better if it didn't ha to wait. wou be better if we were able to find a compromise in which both sides compromised. t there's no reason why all of the compromising should happen on one side. you know, i'm an economist not a political scientist but if you look at the polls, it's not that the polls all say that raising taxes on corporate jets is an inconceivable thing, or closing corporate tax -- >> rose: in the end that's not a lot of money, is it? >> corporate jets is not a lot of money. but it is a powerful symbol of a highly problemat attitude. if you're not even prepared to raise taxes on corporate jets,

then you can't possibly be prepared to address the revenue issue in a way that will make it possible for us to get anywhere near the deficit target. >> rose: when you talk about raising the tax on corporate jets you're talking about deductions. there are a whole lot of deductions for people that do oil and gas and for people that do things abroad. look, some of the deductions, charlie, actually make sense: special favorable treatment tore people who do research and development is probably a good idea. special favorable treatment right now when the economy is demand short for people to invest in new equipment is probably.right thing. but people who transfer intangibles to the cayman islands, no, that's not something that we should have a special deduction for. and that's something that the president has tried to address in his budget for the last two

and a half years and frankly he has not made the progress that i think he should have been able to make. >> why do you think that republicans belief that the growing debt that we have and the economic is responsible for the economic stagnation? why do they think if you cut spending you can stimulate the economy? is that economically sound? >> no. it's not. >> under certain circumstances it might be. >> rose: what are those circumstances? when is it and when is it not? >> that's a great question, great question. in 1993, bill clinton, bob ruben, those of us who supported bill clinton and worked in his administration looked at an economy where we hadeen very

high capital costs, very high interest rates,businesses opering with very high utilization of capacity, but still not investing more because capital costs were so high. and we said if government stopped borrowing then interest rates would come down and when interest rates would come down, it would be cheaper to invest and people would invest in more capital and the capacity would increase and we would get more output and the economy would grow. so we advocated deficit reduction, in order to push the economy forward, and the results proved that president clinton was right. but notice what was crucial then. what was crucial was that capacity utilization was high. factories weren't sitting empty. the capital costs and interest rates were high and could be brought down. none of that is the case right now.

10-year money is today at 2.85 percentage points. pele aren't investing, aren't failing to invest because 2.85 is a prohibitive interest rate. they're failing to invest because why build a new factory when the factory that you have is empty. so the logic through which defici reduction crowds in investment is a logic that applied in 1993. it's a logic that applies in some countries at some times. it's not logic that applies in an extraordina low interest rate economy with an extraordinary high degree of excess capacity. >> are you saying if the president cannot convince the republicans to allow some kind

of revenue enhancement, some kind of revenue to come from consulting deductions and the like, that the economy will stagnate beyond what it is now? >> as long as the debt limit is extendedo weavoid a default -- >> rose: right. >> -- as long as we do the steps that are necessary to inta demand, extendin the payroll cut and so on we will beble to keep the economy going. we we will have missed a chance to address an historically important problem. we will miss that chance. and missing that chce, since there won't be that many chances, that's costly thing to do. >> rose: but that's one thing. >> it's much better to miss that chce than to unbalance the society by slashing basic social protections and not doing

anything -- >> potential social welfare, this social contract that the country has been built on. >> that ry on the idea that our seniors have access to medicare, that we rely on the idea that your social security benefits have purchasing power, and will continue. >> but the president has already said he is already prepared to do something about entitlements. >> the president is prepared to do something about entitlements. >> >> rose: to the criticism of his own base. >> the president has the high ground here. the president is prepared to compromise. he is prepared to make sacrifices on the things that are most importanto him and to his allies if others are prepared to make sacrifices on the things that are most important to tm and to their

allies. what he is not prepared to do is make an agreement thats unbalanced; unbalanced in the sense that we slash governmen twice as much because we're not willing to do anything about revenues; unlanced in the nse that we go much further o entitlements than he is willing to do, because that's the only thinghat we're addressing; and unbalanced because it's being responsive to threats that hold the country hostage. the president is the balanced approach. i think it's very unfortunate that it doesn't seem that his willingness to reach out is being responded to within an equivalent willingness to reach out on the other side.

>> rose: beyond that in language more familiar how would you characterize the republican position on this. >> intransigent, unwilling. >> just unwilli? >> unwling to compromise and very problematic in taking the creditworthiness of the united states asostage unless they get what they want. it would be -- it wod not be the best outcome but it would be a fine outcome if we simply said we can't threaten not to pay our bills. we'readults. adults pay their bills. >> rose: iorder to get our y. >> -- and then extend the debt limit and then we can debate what the rht budget strategy for the country is. only one side in this debate is taking the united states' creditworthiness as a hostage. >> rose: if in fact the president has to capitulate to the republicans on this issue,

in order to make sure this government does not go into default, the casualties will be, number one, a missed opportunity to deal with the deficit, your point; number two, a cut in the lel of human services that you and others believe are an essential part of the social contract this country has with its citizens, especially those o have earned entlements, ok; and thirdly, wha damage to the economy? >> alternatively, depending on what hypothetical agreement was reached, this economy needs more support and needs more demand. and unless whatever happens provides for more support and more demand, we are increasing the risk tt this expansion will further slow. we will with an econo that right now is dangerously close

to stall speed. >> dangerously close to stall spd? >> dangerously close to stall speed. that's what you're saying when you talk about growth at a 2% rate. growth at a 2% rate isn't enough even to keep unemployment constant. >> rose: so it can go higher than 9.2% if the growth% remains at 2%. >> if it remains at 2%. and economies that are growing that slowly, like airplanes that are flying below a certain speed, have a tendency to fall further. that's why i keep coming back to -- i know everybody wants to talk about the long run deficit picture, and that is teibly important. but that's why i -- well, the rest of the world is also dependent on the strength of e u.s. economy. the united states has been the importer of last resort for the last decade, and if the u.s. economy slows further, that's

going to have consequences for economies around the world that pend on u.s marts, and that's why i come bac crucially not just to the budget -- the long-term budget content of any agreement that is reached, and not just to the question of wha it means for creditworthiness, but also to the queion of what it means for the economy in the near term which goes to the questions likehe payroll tax cut, like unemployment insurance, like infrastructure investment. >> but has there been enough urgency shown by this government, the executive branch and the legislative branch, to doing something about unemployment, urgency? >> no. we have not had the jobs deficit at the center of our political

debate. >> rose: why not? >> -- for thelast year. >> rose: why not? >> aga i'm an economist not a political figure. 90 something -- >> rose: the executive branch, there should be a political figure to speak to the executive branch. >> well, i think that one part of it is that there's, i think a misguided fatalism, people think there's nothing that can be done that affects the level of js; whereas, i think measures like the payroll tax cut, he significant measures like investment, have a significant impact on jobs. another part of it is that, frankly, thoseithout jobs aren't in a position to contribute to political campgns and to a disproportionate extent e the people who don't votend so the political system responds more to those with jobs than to those

without jobs. that's another part of what drives this dynamic. and i think that there is an impatience to turn the page from recession policy to recovery policy. if yo look -- >> impatience? >> impatience. people want to move on to the next phase. th isn't a new thing. if you look at the economic history of the 1930's, the american economy grew rapidly from 1932-1936. in 1937 people started talking about suctural problems. ey talked about about need for fiscal responsibility and fighting inflation. and franklin -- and never forget, never forget, and i think it's very important for democrats not to, especially to remember this, if hitler had not

come along, franklin roosevelt would have left office in the beginning of 1941 with an unemployment rate in excess of 15% and an economic recovery strategy that had basically failed. and it was the republican investment program forced by the need for a military buildup that is what saved the american economy. >> so we need a public investment action now to save the u.s. economy? >> the situation today does not have the gravity of the depression, but the principal of more demand and avoiding a premature lurch towards removal of demand, is the same. the united states made the stake in 1937. japan made the mistake at several keyjunctures during the 1990's. charlie, if there's one crucial

judgment that i thk people making macro-economic policy have to come to terms with, it's this: policy is making a balance. and you have to decide whether what you're most conceed about. some people are most concerned about the errors of the 1970s, too much liquidity, too many deficits, too much inflation, of the kind of stagflation that came at the end of jimmy carter's presidency. others are concerned about the mistakes of the 1930's or the mistakes japan made in the 1990s of an economy that simply stalls out because there isn't enough demand, and even with a zero interest rate, removing that barrier to investment just never fully takes off.

and my judgment for the first time in my professional lifetime is that, for the united states, the much greater risk is on the side of making the mistake that japan made, not to do enough. and i think the people who are fighting the war of the late 1970's are withhe stf intentions and with a legit made concern by privileging that coern are putting future prosperity at risk. >> how do you cree demand? i know the big picture; you use the government to promote licies. what are the policies to get people to demand more products so that companies can make more products and hire more people d e capit to build more factories? >> there are four things: you

invest in infrastructure or other things that the public sector -- that's a kind of stimulous program. >> that's kind of a stim you las and creation of demand, different sides of the same coin. you put more money -- you give people -- you give employees or employers tax relief that puts more money in their pocket so that they spend more. you provide support to parts of the economy that we obvious laying people off on a huge scale that they don't wanto lay off because they have important work to do. and that's why support for state and lol governments is so important. you providenemployment insurance and support for workers who have lost their jobs and who would otherwise set off a spiral by cutting their spending. and you do everything that you

can to promote t sale of american products to foreign consumers at a time when foreign economie particularly in emerging market are growing more rapidly than ours. if you do those five things to increase demand, the prospects for more jobs are much greer, and ironically, the prospects for dicit reduction are much great ever because an economy that grows more rapidly is an economy that collects more in taxes, that has to spend less on welfare payments. indeed, the best estimates are that every dollar of extra gdp reduces the deficit by between 25-30-cents in the first year. and, of course, when we

strengthen the economy, that means fewer workers drop out and never come back to work. that means that we have more capital investment and greater capacity down the road. >> all right. there's so much here. there this is going to be a two-part conversation. you will see part of it tomorrow night. larry summers i hope this will be onef many conversations because we are talking about things that will go to the essence the future of this country. >> george stephanopolouss here, anchor of abc's good morning america an also the network's chief political correspondent. before this he was host of the "this week" for seven years. he served as senior advisor to the president on senior talks. i'm pleased to have george come by on this day. welcome. >> let me just talk -- we haven't talked since you left sunday to go daily. >> right.

why the not used to being up this late. >> when doou go to bed, a 8:00? >> it depends on the day. from 8:0 to 10:00. >> but i wake up at 2:30. >> because that's all you need. >> no. i need a little more than that. but i need that much time -- you know how much time it takes for you to prepare for your show. my body naturally back times to 2:30. when i first started the job i was sit the alarm for 3:00 or 3:30 and now i just television? >> dly, number one. so when you make a mistake you can make up for it quickly. i love the qud that, for most people who watch, when they get up in the morning and they turn on at 7:00, it's the first news they're going to get of the day. i love breaking news. and there's nothing like being at that post when there's breaking news and i love the variety. u know, there are times and things where i'mot quite as

well suited on to work for but you and i hav both chased ahmadinejad. to go from an interview with ahmadinejad to an interview with mickey rourke -- >> is this the way you imagined it would be, to go from rhodes scholar to aide in the house to aide to the president to senior advisor at the white house to writing a best-selling book to abc news and now you're one of thtop pple there. >> i'm actually flashing back at this moment to one of the first times i was on your show. it was probably -- >> i remember. in washington. >> in washington. it was early in the clinton years with an extended conversation. i would have never guessed i would have been there at that mome. what was that, 18 years ago? and it's been a lifetime since.

no, i have never had a five-year plan or 10-ar pn. i have always been intereste in public affairs, in journalism. i did in high school and college. in politics, in government, and i have been lucky to have a series of jobs where i get to draw onallof that, and now on gmi can draw more today. >> if you were in the white house today, what do you think the president expects to happen? what can he make happen? >> know what they hope will happen. i think what they hope will happen now is that the big deal -- you're talking about the debt limits? >> we can talk about afghanistan later. >> life, whatever. well, i don want to get t life. >> now that everydy has sort of worked through their issues and it has become clear that something i think they believed with speaker boehner, but it will come around to something like a $2 trillion package or

come up with $2 trillion in vings that will extend the debt limitation. >> that's what the administration believes? that's their revised hope? >> i believe that's true, yes. now, that said, i think that no one involved in this right now really has a good handle on where the boats are and nobody has really seen anyone like that. >> in the congratulate or the implications for this in a political season? >> both. number one i don think anybody knows what can pass right now. because you have -- for example say this 2 trillion-dollar dales. for most democrats it will involve soig medicarend medicaid savings and significant cuts in domestic spending they -- you can't pullhat out of the economy, not the revenues they were hoping for. the overwhelming number of democrats can't vote for this which means the overwhelming

number of republicans in the house he to vote for it yet you have significant numbers, i would say at least 30, maybe0, 30, maybe more, of republicans in the house who will just vote against an extension of the debt limit on principal. >> b the democrats, as you say, are marching into the president, from cheuk assumer and others saying medicare was our issue, we could have been on that and now you are compromising on the deal he makes. i think. >> i think if you're dealing with a smaller, 2.7 or 2 trillion-dollar deal, which is stig a significant amoun of money -- >> you you don't have to go so deeply. >> democrats can argue this will not come out of beneficries. now, who knows how it will play out over time. >> but they lost some of the edge of it because it was a

strong argument if we can believe at least one race. >> conceivably. you could believe they gained an argument because they are serious about reducing spending and perhaps even more important, whether th's the right number, and i'm not convinced that it iswhat i am convincedof is that it would be a disaster if the coury defaulted and goes to default and it could eate an economic condoleezzri and they cou argue it's the right thing to do. >> do you think theepublicans are willing to go to the edge with the confidence the president will bend in the end? >> yes. and i think in that way -- >> and are they right? >> in the end, i think, even if the public -- in we go into default, even if the public blames the republicans more, the president bears more responsibility and has to deal with more of the consequences. >> it used to be said the republicans needed to pay

attention to history and to newt gingrich and bill clinton while you were in the white house. >> and they studied that history as they were taking office coming around this time around. i know speaker boehner and leader mcconnell and e t republicans have. >> and what was the lesson? i thought the lesson was because gingrich went too far -- >> th isn't top-down, i don't think: >> it's not leadership down. >> i think he would cut a deal. this is bottom-up. >> so if you look at the way that the president has handled this, having lived in the white house, having worked in the white house, did he as best he could? >> we're not threw it yet i think that what he has done rit is that he had t get caught trying hard to solve this. >> the paper as you know said

president after press conference moves to the center and tries to command the center. has he done that. >> that's when presidents win. >> has he done that though? looking like, i have these two extremes and i'm sitting here trying to be the great compromiser? >> i think pretty much and he has rankled a lot of democrats by doing it. you certainly saw it last week as you were just mentioning. yeah, i'm not sure how much it's going to matter if this doesn't come together. now, if it falls apart he will bare most of the responsibility and have to deal with the consequence. >> that's why he must compromise in the end. >> in the end. wii is why i thought at yesterday's press conference, had i been covering the press conference, and had i gotten a question five or six in, mr. president, i just heard you say several times, and i know you believe it, that if they come to you with a three-month or six-month or 9-month stedges of the debt limit you're going to say no. >> no. >> do you really mean that?

if they passed an extension, if congress passes an extension, puts it on your desk and it's august 2 and the choice you face is to sign the extension or to face a situation where on august the president said he can't send out social security checks? >> at the same time he is right when he says if not now when. and that the problem will just be worse three months from now. >> and i understand why he makes -- if people aren't convinced that he is serious about it, then you lose all of the pressure. >> is he more cautious than bill clinton? >> well, i wouldn't say that. >> well, he's very, very cautious here. he is prepared to compromise. against the base in order to make a deal. you just said in the end -- >> june of 1995, bill clinton came occupant with a balanced budget upset. democrats in his caucus -- it

was when the speaker gingrich and the house republicans continued to pus for shutting the government down if they didn't get their way, that he stood up to them and he gained. we're not at that pointyet and we're dealing with something different here. back in november 1995 when the government shut down, because this was the first time that we had been in a situation where the debt limit had not been passed for a while, secretary ruben at the time had a l of different tools, levers at his sposal where he could avoid deult and he could extend it for quite a bit of time so we never faced default. i take secretary geitner at his word, when he says august 2nd give or take a day or two is it. it's a much more perilous

situation than shutting down national parks so i think that's much tougher. and what i first thought of when yo said -- president clinton is obviously bold in many ways but when you look at that decision to take out osama bin laden and from everybody chose to him, that was a pretty gutsy thing. >> that was -- if that had failed he would have looked more of jimmy carter. >> and it was probably a 60% percentage at risk. >> if he listened to them and there were peopl that trusted and said don't do this, take the easy option. >> yever know that it's him. but we would know. >> how is he doing over all in your judgment, the president? >> solid. i mean, it's hard to imagine. i'm trying to thin in our lifetimef anybody has been

dealt a suffer hand coming into the white house. and given that, i tnk he has done remarkably well the fact, if you just looking at the politics first, the fact that he has been able over the course of two years now to maintain a personality favorabity above 50% when he has had most of the time 9% ispl pretty steady. i think people respect him even morehan they like him. i think that i think in terms of the big policy decisions he has had to make, and i know a lot of people would disagree with this, i think that any president that came in in january in 2009 wld have had to -- the financial

syem. >> he there to stop the slid before anything else. >> on the stimulus, you know, i was going to say i -- more was necessary. they. >> they should have said 1.3 trillion or something. that was to the possible. i mean paul crudman may have a valid argument, and i know a lot of people disagree with it, but when he said you needed a 1.3 trillion, i'm 99% sure that there was no way that you were going to get anything with a 1 in front of it through the congress. >> how about this idea, the ability to explain what you're trying to do. >> that's what he always goes through at his fail -- i think she right. you don't? i think the health care debate got out of control because of

him. >> that's a different matter. you could make t argument that it was simply -- that it was a policy mistake even though he got it gone and even if you believed in gting health care done to pursue it at that time in the face of that kind of unployment. u know, maybe this is my bias, but i toned think that the communications generally follows substance. >> it's too easy to say anybody who says it's a marketg problem communication problem is not paying attention to the policy but i understand that part of leadership is being able to explain what you're doing and that's more than a marketing issue it's a capacity to communicate leadership and telling people this is where i want to go where it's not misinterpreted or misused. >> i agree with that. but it's difficult though for people who are hurting to believe that things are going to

get better or that this policy is going to make their lives better when it's not going to be implemented for the most part and they're still feeling that. >> on the politics that we're seeing now, we don't note the final deal. >> that's what they're hoping for. i don't think anybody knows the final deal. i think that's what they're hoping for. the leaders. i think that right now the president, the house republic leadership and pbably the senate republican leaders and the senate -- eughenat democrats believe that this trillion-dollar or so deal is probably good enough, you're going to have significant numbers vote against it no matter what, significant numbers of house republicans vote against it but that's where the center of gravity -- that's where th leaders would like the

center of gravity to be. i'm not convinced and our congressionareporter was covering the house republican conference thisorning and now usually behind closed dos you hear from the naysayers and according to his reportings every spore that got up was actually takinon eric cantor -- >> taking him on. >> saying it's not good enough. cuts are not deep enough. >> because cantor has been the one there 0 far and even now saying you -- i was going to ask is cantor the winner of all of this is. >> right now there are no winners. all losers or just all undecided? >> if this thing falls apart and we face anything like a default, everyone in office is and people you talk to think the

possibility of this happening is less than 50, less than 30? >> what i have noticed, i have -- throughout thi debate for several weeks, i have been mystified by suddenly how everybody here in new york, especially in the fincial world is betng thiss just going to get involved. and they maying rig after a couple of shots but talking to people in washington everyay ordealing with this that y could see and feel that the differences were deep and i think lastly speer boehner said 50-50 on thursday and i think that's about where it was. it's a little below there now. >>. >> what is interesting are those people who make the following argument, it's ok if it fails, if we have a default. we can live through it and it's better to stick to your principal. >> they may be right but who

wants to take the risk. i mean last june, one afternoon, you know, i watched the market and saw it drop a thousand points in 8 minutes. no one knows what will happen if significant numbers of people to institutionsegin to believe that it's possible that it falls on a debt. and you wouldn't want to take that risk that it could spin out of control when everything moves so quickly in this interconnected world. i think it's a terrible risk. and i know others say that you can it won't necessarily be a

crises but as he says i can pay the fit round of treasure debt inering do you know what it looks like the first day social security checks don't go out? >> ros tell me. >> if you're a politician and if you already -- >> if you don't have checks. >> it's worse. >> let me turn to politics of a different kind. are you surprised how well michelle bachman is doing, the latest poll in iowa? >> she is head. >> where she is born, where there's a natural constituency for her? >> in some senses yes, in some instances no. what i have been surprised at, and i have now interviewed her several times, is how skilled she is at maneuvering through tough questions and you talk

about communicating a clear message about who she is and what she believes in almost every -- >> but did there seem to be a turn during the debate where she had better o good advice, it was less. it was more skillful use of phra and less of the kind of red meat that she has -- >> well, there was a lot of red meat in there but it was very well deliver. you talk about the deabt. she can so many things right. number one in th first answ she made it official that she was coming. you're guarantied right out of the headlines right there. and then on top of that, in every -- just about every answer, she reminded everybody who she was. >> it's establishing your narrative. >> exactly. >> you know, when she talks about being married for 30 years -- >> 23. >> 23 foster children, what that communicates to a lot of her voters, especially that she

walks along. she one of them. she believes what she says and heacts on her beliefs. romney has not even ce out on the debt limitation debate, has he? >> i think he has signed that cap cut pledge but he has been fairly quiet. and in fact i was nawking to one of his top aides the other day and just said you know we're not going toet in the middle of that sausage making -- but if you're not in washington and you don't have to be responsible for it why would you want to put yourself in the middle of it? >> when you ask yourself why can't we do better than 9.2% unemployment, at answer do you find? well, a few diffent on. one wod be- we were talking about a few minutes ago. i believe personalintervention would have made a difference. secondly, we're living in a new world where -- and every corporation has been through it,

when the cutbacks come and they look forward to doing it with fewer workers. >> and there may be long-term answers to terms of educating the workforce and educating the once who take advantage of those opportunities and that is the biggest one right there. >> will the coverage be bigger than iwas four years ago. >> the trouble is to sift through the overwhelming amounts of information that comes in every day and try to construct a convincing narrative about what is happening, about what is going on. >> rose: and despite wha you read, how much of it is simply -- how much of where you come down in terms of your comprehension and grasp of the issues.

one is clear live what you learn before you got to the job, one is how much you read but how much iyour capacity to reach ouand talk to people who are maki the decisions and get a fix on it? that old basic communition between one person and another? >> because you know what? what cannot be communicated on twitter, as great at it is, is silence. and it's that silence sometimes on the phone when you ask a question -- >> and they don't have an easy answer. >> and they're thinking. or if it's a question they can answer -- or even if you don't do anything with it right away, you have a sense of where things might be going. so the silence, the tone of voice, you know, the emotion can't readily be captured even though there are a lot of things -- you don't have to be at every speech. but it's that contact you can't ke up for. >> it seems in politics, and we

found this out in the previous race, there s no privacy at all, in an era of ce phones that can regard -- >> it's not just for politics anymore, it's for anyone. >> what story, beyond the political story, excites you the most in the world tay. >> excites me the most? >> grabs your fascination. is it some great sense of china versus the united states? is it some sense of the coming grips with the overwhelming power in political chge of social media? is it -- the middle east and -- >> it was impossible not t be. because of the way it a happened and it connects to the debt story a little bit. in a way that was pfectly predictable and perfectly

unpredictable at the same time. >> because of the history of it. >> because they have been under a pressure cooker for a generation. at some point it was going to break but gliefer knew what would be the trigger. >> one man sets himself on fire -- >> and it spreads. you go back to that and you saw policy makers acting in purposefly predictable ways through the matter about how to handle mubarak. for most leaders who have been in positions of powe and the united states for generations,y, you ee he had real problems, was not a ue democrat, but also was seen as an ally and some way's merating force and suddenly, it phillips. >> you have to get up early so i thank you for come >> tha you. this was fun.

captioning sponsored by rose communications captd iobyneio media access group at wgbh accegss.worh.or >> funding for charlie rose has been provided by the coca-cola company supporting this program since 2002. >> and americanexprs. >>dditnal funding provided by these funders.

>> yes. >> i'm afraid she's dead., wou't you say? >> oh, now, really. i didna pros